Insolvency and the Senate References Committee Report 2

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Wednesday, February 17th, 2016
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In December last year, the federal government released a report on insolvency in the Australian construction industry.

This report arose out of a year of hearings around Australia into the experiences of many parties in the industry. It is poignant that the subtitle of the report is the phrase ‘I just want to be paid.’

Over Christmas, I read this report from cover to cover. The first thing that struck me was the fact that all the relevant issues did come into sharp focus and the committee – and by extension the government – do certainly know what goes on, and in great detail. The executive summary is an excellent piece of work and shows that the hearings really did cover a lot of ground.

The other interesting thing was the perspective. The committee really got into the shoes of the subcontractor. The recent reports around the country on this issue are all agreed that 80 per cent to 85 per cent of the work on construction sites is done by subcontractors and so any study of insolvency invariably forces one to look at the world though their eyes. Many subcontractors gave evidence. So far, this is looking like it will reveal some inner truths that will change the industry for the better.

The report came up with 44 recommendations. As I read them I started to remember that great comedy series from the 1980s, ‘Yes Minister,’ where government’s well-meaning and necessary changes started at a sprint and then got stuck in procedure and process, slowed down to a crawl, until it was finally quietly killed off. If anyone doubts that view, they need only look at the multitude of government inquiries into payment in the construction industry dating back to the early nineties. They all came to similar if not identical conclusions. But what changed?

The answer is, very little.

Yes there has have been many legislative changes, but you have to ask yourself why inquiries today are still trying to address the same problem addressed by earlier inquiries 25 years ago. Even this current report notes various changes to legislation, but under which no one has ever been prosecuted, false statutory declarations being but one of them.

The problem with this report is that the scope of the recommendations are so wide, and require the agreement, co-ordination, and input of so many different parties, that there is only a minute chance that any of it will actually become a reality. Another issue is that because the scope is so wide, the recommendations are necessarily vague and some seem to be ‘motherhood’ statements.

This is not an immediate criticism. In fact I think it is probably unavoidable. My point is that the realisation of these recommendations will require so much from so many other parties that they are unlikely to be realised.

To cite one example, there is Recommendation 5, which addresses the non-payment of employee superannuation contributions, and how early detection of it would be beneficial.

“The committee recommends that the ATO and ASIC increase their formal co-operation with superannuation funds to co-ordinate measure around early detection of non-payment of superannuation guarantee,” it reads.

To achieve this early detection, the ATO and ASIC will need to work out a strategy. Then they will have to gain agreement with the superannuation industry. If agreement is reached, they will then have to import it into their interactions with all the different superannuation funds. This will require the co-ordination of two federal bodies and who knows how many funds. How long is this likely to take? This is a process and a half just on its own.

How about Recommendation 22, which reads “The committee recommends that state and territory governments and agencies responsible for administering their security of payment legislation scrutinise the practice of providing false statutory declarations and where necessary, launch prosecutions as a practical deterrent.”

This one will need state governments and relevant agencies to launch prosecutions in relation to a false statutory declaration. This has been law for a while, certainly in New South Wales. I am not aware of any prosecutions. I may not be totally informed on this, as such prosecutions are not publicised, but even if there is one or two about, there are nowhere near the number to reflect the pervasiveness of this problem. So far, state governments are taking a hands-off approach to false statutory declarations and there is no apparent will to change that in the foreseeable future.

Recommendation 34 addresses a key problem related to the same ‘ethically challenged’ people from killing off their company and then simply starting again. It follows up an earlier recommendation that all contractors require licencing as per the Queensland model. It says “The committee recommends that automated cross-agency data sharing should trigger an alert when an individual; declares bankruptcy; is convicted of fraud; is disqualified as a director; or liquidates a company. This alert should require the relevant state or territory regulator to satisfy itself that the licence-holder remains a fit and proper person.”

This sounds great, but what a heavy lift. How many agencies will need to be involved here? And as for data-sharing, there will need to be programmes and protocols put in place to make this work. Beyond that, what about the legislation required to make all this to happen? There will be a lot of it, I would imagine, around privacy and defamation and so on. New legislation is a long, long road. So what are the chances that this will actually get up? It seems unlikely.

My sentiments here are somewhat echoed at the end of the report under the section entitled Coalition Senator’s Additional Comments. It notes the difficulty in coordinating the many parties required to make much of this work. It also notes that of the 44 recommendations, 15 relate to the ASIC and new things it must do. The review of ASIC and its scope are under review separately and as usual the limited resources of ASIC is an issue. The comments also note that some of the recommendations cut across other government initiatives that may not allow or even prioritise the report’s recommendations. The Phoenix Taskforce is but one mentioned, and that taskforce involves 19 member parties already at work on related strategies.

The government is yet to make its formal response to this report, and maybe there is more will to make changes than I give it credit for. Of course, we would all hope that many of these recommendations come to pass. But it’s not going to be easy…or quick.

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  1. Julie Ward

    Ahhh to live in the lucky country. It rather looks like we will be lucky to get paid at all since the payer is so well protected should he chose not to pay and don't get me started on superannuation – no guarantees you will receive on retirement what has been dedicatedly put in for so long. Lucky my arse.

  2. Graham Morrow

    Thanks, good article.
    This report and the gathering of evidence/submissions does not appear to have been widely publicised. I agree that changes, if any, will be minor and slow to occur. I assume other industries have the same problems with introducing legislative change?